Nilgiri Dairy Farm, the parent of south-based food and grocery retailer Nilgiri's, has seen losses widen and growth projections go awry in recent years.

Last week, VCCircle reported that UK-based private equity major Actis was in exit mode from the company after escalating tensions with the founding Mudaliar family.

VCCircle learns that privately held Nilgiri Dairy's net loss jumped to Rs 22.16 crore in FY09 compared to Rs 3.14 crore and Rs 31 lakh profit in the two immediately preceding fiscals. The total income for FY08 and FY07 was Rs 128 crore and Rs 105 crore, with net sales at Rs 119 crore and Rs 102 crore respectively. The net sales for FY09 stood at Rs 134 crore, but the total income increased to Rs 196 crore due to a sudden increase in other income.

While the number of stores were ramped up from 30 to around 100 (and possibly 115 in the current fiscal), the net sales reached Rs 134 crore from a little over Rs 100 crore, three years back.

In fact, the company itself pointed out mismatched growth projections in an explanation to auditor qualifications on interim dividend payout in the midst of mounting losses. Nilgiri said that 'while the forecasts indicated sufficiency in reserves, actual performance for the year was impacted by making a significant provisioning for bad and doubtful debts leading to significant losses for the year.'

Retailers across the board struggled and scaled back expansion plans in the last 12 months as consumer sentiments dropped in the midst of the century's worst global economic downturn.

Actis had acquired 65% stake in September 2006, with the founding family continuing to hold the remaining 35%. Interestingly, the Mudaliar family is attempting a buyback from Actis, signalling once again the challenges facing PE buyouts in high-growth markets.

"PE buyouts in matured markets involve businesses that are large, stable and growing at steady pace, at not more than 5% annually. However, it becomes a question of managing high velocity growth when you acquire assets in markets like India, where businesses are

reporting high double digit scale-ups. And it is easy to mismanage this game," argues a fund manager, who has worked on buyout transactions for private equity in the recent past.

PEs normally make upfront cash payout for acquisitions in India as leveraged buyouts (LBOs) are not in vogue (lending against shares are not allowed). This potentially leads to a 'return neutral' sort of scenario where the bet is then invariably on "red-hot" growth.

In some cases, the funds have asked the selling promoter to stay on with the operational management to tackle growth. Nearly three years after the deal, Blackstone continues to work along with the original promoter in navigating a complex buyout of India's largest apparel exportter Gokaldas Exports Ltd. Another option is probably partnering with professional entrepreneurs in acquiring assets. Indeed, Actis was one of the earliest funds to look at resident entrepreneurs in advising and managing such deals.

As PE matures in India, few funds have started focusing on buyout control transactions in India. Since 2006, there have been 32 control deals by PE players in India, according to VCCEdge, the research platform of VCCircle. There were only five such deals in 2006, and it jumped to 11 transactions each in 2007 and 2008, when overall PE deals also increased. With a slowdown in deal-making, 2009 has seen this number fall to five again.

But it is not as though buyout deals haven't made money in India. ICICI Venture, backed by India's largest private sector lender ICICI Bank, has made good returns on buyouts like Infomedia India Ltd (renamed Infomedia18 after buyout by TV18 group) and ACE Refractories.

A consortium of private equity investors led by Sabre Capital was also able to reap good returns after Centurion Bank of Punjab was acquired by HDFC in 2008. Actis itself, which was the largest shareholder in Punjab Tractors Ltd, was able to get good returns when the latter was acquired by Mahindra & Mahindra Ltd.